Association Of State Road Transport, ... vs Assessee

order of the Director of Income Tax (Exemptions), New Delhi dated 2 ITA NO. 3271/ Del/2014

28/03/2014 passed u/s 263 of the Income Tax Act 1961 (for short the

act).

2. The main grounds raised by the assessee in this appeal reads

as under :

" 1. That on facts and in law the Director of Income Tax (Exemptions), New Delhi {hereinafter referred to as the "DIT(E)"} erred in assuming jurisdiction u/s 263 of the Act in as much as the order passed by the Asstt Director of Income Tax (Exemptions) {hereinafter referred to as the "AO"} u/s 143(3) of the act was neither erroneous nor prejudicial to the interest of Revenue.

2. That on facts and in law the DIT(E) erred in holding / observing that :

a. Receipts of appellant from Test Laboratory Services of Rs. 7.72 crores and Consultancy Services of Rs. 62.47 lakhs do not fall within the ambit of Section 2(15) of the Income Tax Act.

b. The appellant is not eligible for claiming exemption u/s 11 of the Act on income derived from the above receipts.

c. In proceedings u/s 143(3), the AO had not examined the issue of taxability of above receipts in light of provisions of section 2(15) of the Act.

3. That on facts and in law the order of DIT(E) suffers from an inherent contradiction vitiating his orde in as much as on one hand he decided the issue on merits while at the same time he directed the AO to make a de novo examination.

4. That on facts and in law the DIT(E) erred in setting aside the order of assessment dated 28th December 2011 passed by the AO u/s 143(3) of the Act.

5. That on fact and in law the order passed by DIT(E) u/s 263 of the Act is bad in law and void ab-initio."

3. Briefly stated the facts giving rise to this appeals are that the

assessee filed its return of income on 30.3.2010 declaring return 3 ITA NO. 3271/ Del/2014

income at nil. Thereafter the assessment in this case was completed

on 28.12.2011 at an income of Rs. 4,39,07,729/- being accumulated

amount in financial year 2003-04 not utilized within a period of 4

years which was expired on 31.3.2009. It is pertinent to note that the

Assessing Officer accepted nil return of income u/s 143(3) of the act

but made addition of accumulated amount as per Clause (a) given

after third proviso to section 10 (23C) (iv) of the Act.

4. Subsequently on going through the records it was noticed by the

DIT(E) that the assessee had received under the head of "revenue

from tax laboratory" of Rs. 7.72 crores and "consultancy receipts" of

Rs. 62.47 lakhs which were found to be commercial in nature by the

DIT(E). The DIT(E) proceeded to issue notice u/s 263 of the Act in

pursuance by observing that as per amended provisions of Section

(2) (15) of the Act, charitable purpose includes relief of the poor,

education, medical relief, preservation of environment (including

watersheds, forests and wildlife) preservation of monuments or

places or objects of artistic or historic interest and the advancement

of any other object of general public utility; provided that the

advancement of any other object of general public utility shall not be

a charitable purpose, if it involves the carrying on of any activity in the 4 ITA NO. 3271/ Del/2014

nature of trade, commerce of business, or any activity of rendering

any service in relation to any trade, commerce or business, for a cess

or fee or any other consideration, if aggregate receipt exceeds Rs. 10

lacs during the year irrespective of the nature of use or application, or

retention, of the income from such activity.

5. The Ld. DIT(E) issued a notice u/s 263 of the Act vide dated

06.02.2014 to the assessee and after considering the written

submissions of the assessee filed on 10.3.2014 the DIT(E), rejected

the submissions and objection of the assessee and passed impugned

order by holding that the order passed by the AO is erroneous

inasmuch as it is prejudicial to the interest of the Revenue and the

DIT(E) set aside the original assessment order with the directions to

the AO to frame the assessment afreshing after due application of

mind and law and after calling and examining necessary details /

evidences and giving due opportunity of hearing to the assessee.

Now the aggrieved assessee is before this tribunal with the grounds

as reproduced hereinabove.

6. We have heard argument of both the sides and carefully

perused the relevant material placed on record. The Ld. Assessee's

Representative (AR) submitted that the assessment order passed 5 ITA NO. 3271/ Del/2014

u/s 143(3) of the Act was neither erroneous nor prejudicial to the

interest of Revenue and the DIT(E) erred in holding and observing

that the receipts of the assessee appellant from test laboratory

services and consultancy services do not fall within ambit of Section

2(15) of the Act and therefore, the Assessee is not eligible from

claiming exemption u/s 11 of the Act on the income derived from the

above receipts. The Ld. AR vehemently contended that during the

assessment proceedings u/s 143(3) of the Act, the AO examined and

verified the issue of taxability of above receipts in the light of

provisions of Section 2(15) of the Act and the DIT(E) was not justified

in holding that the AO had not examined the same. The Ld. AR also

contended that the impugned order suffers from inherent

contradiction as much as on one hand he decided the issue on merits

and at the same time he directed to AO to make a de novo

examination setting aside the original assessment order dated

28.12.2011 passed u/s 143(3) of the Act.

7. The Ld. AR further drawn our attention towards order of Hon'ble

jurisdictional High Court of Delhi in the case of India Trade Promotion

Organisation Vs. DGIT (E) 2015 - TIOL-227-HC-DEL-IT and

submitted that the first proviso to Section 2(15) of the Act as 6 ITA NO. 3271/ Del/2014

amended by the Finance Act would have to be read down and

interpreted in the context of Section 10(23C) (iv) of the Act as the

context requires such interpretation and where a institution is not

driving primarily by desired or motive to earn profit but to do charity

with an object of general public utility then it must be recorded as an

institution established for charitable purposes.

8. The Ld. AR also placed a reliance on various decisions

including decision of Hon'ble Delhi High Court in the case of Institute

of Chartered Accountant of India Vs. DGI reported in 347 ITR

99(Delhi) and submitted that the first proviso to Section 2(15) of the

Act to include any transaction for a fee or money and the activity

would be "business" if it is undertaken with a profit motive, but in

same cases this may not be determinative and the profit motive test

should be specified in the context of Section 10(23C) (iv) of the Act.

9. The Ld. AR also pointed out that the assessee is an

association and apex coordinating body of State Road Transport

Undertakings (STUs) registered as a Society under the Societies

Registration Act and is wholly patronized by Central Government for

working under aegis of Ministry of Road Transport and Highways.

The Ld. AR, further, pointed out the Secretary to the Government of 7 ITA NO. 3271/ Del/2014

India, Ministry of Road Transport and Highways is ex-officio president

of the assessee association and the Governing Body of the ASTRU

comprises of Representative from all State Road Transport

Undertaking. The Ld. AR further pointed out that the Assessee

association was established with the main object of improving public

transport system in the country and some of the relevant aim and

objects of the assessee association mentioned in its Memorandum of

Association which are as follows :-

" (i) to undertake and promote research studies in transport economic and engineering and other matters affecting the transport industry.

(ii)- A to have established a Central Institute of Road Transport (CIRT) for undertaking Training and Research, Laboratory and Development of appropriate and advanced

technology, new technologies, improvement of indigenous technology, adoption and development of imported technology in the field of transport;

(ii) to secure and provide a technical consultancy service which can be availed of by the State Transport Undertakings.

(iii) to render common service to the members and assist them in such matters as standardization of equipment, purchase of materials for their own use at economic prices, promotion of efficiency of Road Transport services and reduction in the operational costs of the members.

(iv) To provide and promote facilities for advancing the skill of persons employed or to be employed in the State Transport Undertakings through instruction, training and research.

(xii) To assist in the work of prescribing standards and specifications and in carrying out tests."

8 ITA NO. 3271/ Del/2014 10. The Ld AR further, submitted that the assessee is registered

under the provisions of Section12A of the act with effect from

27.4.1982 and the assessee has also been notified as a charitable

organization u/s 10(23C) (iv) of the Act vide notification no. 1348

dated 31.10.2007 and these registration, approval and notification are

still subsisting as on the date.

11. The Ld. AR further, pointed out that the impugned test charges

have not been changed / revised since 2001 which supports the fact

that the assessee is not running on commercial lines having profit as

a pre-dominent motive the Ld. AR elaborated that in accordance with

one of the main object of Central Institution of Road Transport was

established by the assessee in 1967 and CIRT has been awarded the

ISO 9001 and ISO 14001 Certificates by TUV Suddeutschland of

Munich, Germany for the design and execution of training, research,

consultancy and testing services. The main income of CIRT is from

the test charges conducted in compliance to the statutory obligations

entrusted and bestowed upon it. The test charges are charged from

the manufacturers are just to meet the running cost of laboratory and 9 ITA NO. 3271/ Del/2014

no commercial rate is being charged and the charges for testing are

same without any change or revision since 2001.

12. About impugned consultancy charges the Ld. AR submitted

that apart from Automobile components testing, the other primary

activity of the Assessee is management development, research and

consultancy in the field of automobile components and in the interest

of the Road Transport Sector as a whole. The Ld. AR further, drawn

our attention towards test application filed page 7 and submitted that

the CIRT offers consultancy services specially akin to traffic policies,

promotion of efficiency of Road Transport services, reduction in the

operational management and maintenance function of automobile

parts, performance improvement measures, bus body inspection,

inspection of CNG buses, improvement on tyre life and fuel economy

of fleet etc. The Ld. AR strenuously contended that for providing

these kind of services to the State Transport Undertakings which

provide transport facility to a common public , a very nominal and

economical rate is charged. The AR lastly pointed out that these

activities are being carried out in the furtherance and advancement

of the object of the assessee as set out in the Memorandum of

Association and that too not on commercial lines, as the predominant 10 ITA NO. 3271/ Del/2014

object of Assessee is not to earn profit but to sub-serve and provide

services to its member STUs and the Government of India.

13. The Ld. AR reiterates its argument and grounds of appeals

submitted that the DIT(E) rejected detailed objection of the assessee

dated 10.03.2014 and passed impugned order by directing the AO to

frame de novo assessment after calling and examining necessary

details and evidences and after providing due opportunity of being

heard for the assessee. The Ld. AR finally contended that the DIT(E)

misunderstood the proviso to section 2(15) of the Act which was

inserted by Finance Act, 2008 with effect from 01.04.2009 as the

same should be considered in the context of Section 10 (23C) (iv) of

the Act, therefore, the notice u/s 263 of the Act as well as impugned

order may kindly be quashed.

14. Replying to the above, the Ld. DR supported the impugned

order and submitted that the AO had not examined the issue as per

provisons of the Act specially as per proviso attached to Section

2(15) of the Act and the AO did not examined the issue of taxability of

Revenue from Test Laboratory and Consultancy charges in the light

of amended provisions of Section 2(15) of the Act and therefore, the

DIT(E) was quite justified in holding that the order is erroneous and 11 ITA NO. 3271/ Del/2014

inasmuch as it is prejudicial to the interest of the Revenue. The Ld.

DR also contended that the assessee would get due opportunity of

hearing and to submit necessary details, evidences and explanations

regarding his claim during reframing of de novo assessment in

pursuance to impugned order passed u/s 263 of the Act and there

would be no prejudiced of the assessee in this regard.

15. On careful consideration on above submissions at the very

outset we find appropriate to the produce notice issued by the DIT(E)

dated 6.2.2014 to the assessee which reads as under :-

"The Principal Officer, Association of State Road Transport Undertaking

Plot No. 4A PSP Block, Pocket-14 Sector 8 Dwarka, New Delhi-110075 Sir, Sub : Show cause notice for setting aside the assessment u/s 263 of the Income Tax Act, 1961 - Asstt. Year 2009-10. Please refer to the subject cited above It is noted that the assessment of the above mentioned assessee was completed in December, 2011 at an income of Rs. 4,39,07,729/- as the assessee has failed to utilize the accumulated sum within the specified period. Activities of the Trust are covered under the last limb of amended section 2(15) i.e. "Advancement of any other object of general public utility". A perusal of TDS certificates and Income & Expenditure A/c revealed that the assessee had receipts under the heads "Revenue from Test Laboratory" of Rs. 7.72 crores and "Consultancy receipts" of Rs. 62.47 lacs, which were commercial in nature and their aggregate exceeded Rs. 10 Lacs.

12 ITA NO. 3271/ Del/2014 2. As per amended provisions of Section 2(15) of the Income Tax Act, 1961, charitable purpose includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest ] and the advancement of any other object of general public utility; provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce of business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, if aggregate receipt exceeds Rs. 10 Lacs during the year irrespective of the nature of use or application, or retention, of the income from such activity.

3. In view of the above stated facts and as per the amended provisions of section 2(15), the activities of the assessee are not charitable in nature. Hence, the assessee was not eligible for exemption u/s 11 of Income Tax Act and its income should been brought to tax in view of the provisions of section 2(15) read with section 13(8) of the

Income Tax Act, 1961. Thus, the AO has failed to assess this taxable income of the assessee and has erroneously treated its income amounting to Rs. 1,32,76,185/- as exempt u/s 11 of the Income Tax Act.

4. This has resulted in framing an erroneous assessment and causing prejudice to the interest of revenue. You are hereby given an opportunity of being heard to explain as to why the order passed by the AO may not be set aside u/s 263 to be made afresh. Date of hearing has been fixed for 14.2.2014 at 11.00 AM at my office. You may produce all evidence necessary in support of your explanation."

16. From the bare reading of the impugned order we further observe

that the DIT(E) rejected the objection of the assessee and passed the

impugned order by holding as under :-

13 ITA NO. 3271/ Del/2014

"I have gone through facts of the case and submissions of the assesses. There is not merit in the submissions of the assessee. The assessee has contended that it activities are charitable in nature as it is catering the State Road Transport Undertakings (STUs) needs for expertise which in turn are carrying out activities of general public utility as the assessee is nto carrying out any business with parties other than STUs which are also members of Federation. There is no element of commerce and business involved. It is further contended that this issue was examined by the AO at the time of framing assessment hence provisions of section 263 of the Act cannot be invoked in its case. 4.1 It is seen that the activities of providing lab test service and consultancy are being carried out like any other agency performing this function. Its activities cannot be termed as charitable simply because it is catering to government agency. Further STUs can get the same work done from any other agency too by paying the requisite charge. The assessee is only a preferred source of service for STUs. It is activities are clearly hit by the provision of section 2(15) of the Act.

4.2 Business normally has following ingredients .

(i) Continuance and systematic activity,

(ii) Transaction between two persons,

(iii) Element of reciprocity; and

(iv) Profit motive.

Normally, profit motive test must be satisfied, but it is not final. If there is evidence and material to show that the activities were carried out on sound and recognized business principles and pursued with reasonable continuity, it would constitute business, even if there is no profit motive. In the case of P. Krishnamanon (356 ITR 48), the Apex Court has held that it is not motive of the person doing an act, which decides whether the act done by him is the carrying on what otherwise would be a business vocation. If it were not so, a person carrying on what otherwise would be a business may say that he did not carrying on business because it was not his intention to make any income out of it. The Supreme Court followed the 1888 British decision in the case of Incorporated Counsil of Law (3 Tax - Cas 105) 14 ITA NO. 3271/ Del/2014

wherein it was held that it was not essential to carrying on of trade that the people carrying it on should make profit nor is it necessary that the people carrying it on should desire or wish to make a profit. In the case of Customs and Excise Commissioner vs. Lord Fissur (1981 STC 238), it was held that lack of pursuit of profit or earnings did not prevent an activity from being a business if in any other respect it plainly was."

17. On careful consideration of above submission of both the

sides and the allegations mentioned by the DIT(E) in the notice u/s

263 of the Act (supra) and conclusion of the DGIT(E) in the impugned

order (supra) from page no. 34 and 35 of the Stay Application folder

we note that the assessee filed detailed reply to the DIT(E) to the

notice u/s 263 of the Act. The Ld. AR has submitted that the purpose

of introducing the proviso to u/s 2 (15) of the Act can be understood

from the page speech of the Finance Minister while introducing the

finance bill, 2008 the relevant extract of the speech has been

mentioned as under :-

"charitable purpose includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purpose would also fall under "charitable purpose." Obviously, this was not the function of parliament and, hence, apropos to amend the 15 ITA NO. 3271/ Del/2014

law to exclude the aforesaid cases, genuine charitable organizations will not in any way be affected."

18. The Ld. AR has also contended that during the course of

assessment proceedings vide questionnaire dated 1.8.2011. The AO

directed the assessee to submit a reply in the light of recent

amendment to section 2(15) of the Act and the assessee filed vide

written submissions dated 5.9.2011 and 22.9.2011. The Ld. AR also

contended that in reply to the carry of the AO the information sought

by the AO was placed on record vide submissions dated 28.12.2011

of the assessee and assessee is placed copies of the bills approvals,

certificates and rates- list evidencing the nature of activities and

modus of operation of CIRT Central. The Ld. AR also pointed out

that after considering the above replies, the AO, in his order of

assessment dated 28.12.2011, granted the charitable status to the

assessee. Therefore, the Assessing Officer made detailed inquiries

about charitable purpose of the assessee as well as impugned

amount of tax charges and consultancy charges.

19. The Ld. AR has also placed on reliance on the decision of

Hon'ble Delhi High Court in the case of DIT(E) Institution of Chartered

Accountant of India (2012) 347 ITR 86 (Delhi) and submitted that the 16 ITA NO. 3271/ Del/2014

purpose and object to do business is normally to earn and is carried

out with a profit motive; in some cases the absence of profit motive

may not be determinative. The Ld. AR contended that in that case the

Hon'ble Jurisdictional High Court has held that where the

Commissioner without examining the concept of business had held

that the institution was carried on business and coaching and

programmes were held by them and a fee was being charged for the

same then also in absence of profit motive the order of revision u/s

263 Act was not held to be valid.

20. The Ld. AR placing reliance on the another decision of

Hon'ble Delhi High Court in the case of Institute of Chartered

Accountants of India and Ors. Vs. DGI reported in 347 ITR 99 (Delhi)

submitted that the denial of exemption on the ground that the activity

constituted with the business within the meaning of Section 2(15) of

the Act is not valid as there should be material and sustainable facts

and other incriminating circumstances which justify and show that the

activity under taken by the assessee is in fact in the nature of

business. The Ld. AR pointed out that when the assessee association

is not carrying out any business activities and simply rendering

services to meet the purpose and objects for which it was 17 ITA NO. 3271/ Del/2014

incorporated then the receipts of the assessee from ancillary activities

cannot be held on business activity and such income cannot be held

as business income of the assessee. The Ld. Counsel vehemently

pointed out that the assessee association never carried any business

activity with profit motive, therefore, allegation of the department are

baseless.

21. The Ld. AR of the assessee, further, placing reliance on the

recent decision of Hon'ble Delhi High Court in the case of ICAI vs.

DGIT (E) 258 ITR 91 (Delhi) submitted that the expression

"business", "Trade" or "Commerce" as used to proviso to Section

2(15) of the Act is not objected to exclude entities which are

essentially for charitable purpose but are conducting some activities

for a consideration or a fees without any profit motive and these

words use in the first proviso must be interpreted restrictively and

where the main object of association is charitable then any incidental

activity for furtherance of the object does not fall within the expression

of "business", "Trade" or "Commerce" for profit motive.

22. The Ld. AR completed his submission and contention by

contending that when the Assessing Officer is regularly granting

exemption u/s 11 of the Act for alleged receipts then merely because 18 ITA NO. 3271/ Del/2014

a new proviso was inserted to Section 2(15) of the Act does not put

the Assessee Association out of ambit of charitable organization and

it cannot be held that the activities of the assessee in order to

imparting test and consultancy services and charges earn therefrom

are the activities with profit motive. The Ld. AR reiterating its

argument submitted that the activity of testing of Auto Mobile parts

and the activity of consultancy are being carried out in furtherance

and advancement of the object of the Assessee Association set out

to in the memorandum of association (Clause no. ii) and not on

commercial lines because the pre dominant object of the assessee

association is not to earn profit but to subserve and provide services

to its member State Transport Undertakings and Government of India

without any profit motives within the limits of its charitable purpose

and objects. The Ld. AR finally prayed that the impugned order

passed u/s 263 of the Act and all subsequent proceedings and

orders deserve to be quashed.

23. Replying to the above, the Ld. Departmental Representative

placing reliance on the decision of Hon'ble Punjab and Haryana High

Court in the case of CIT vs. Truck Operators Association 328 ITR 636

(P & H) submitted that when the assessee was vigorously pursuing 19 ITA NO. 3271/ Del/2014

business activity by receiving huge quantum of laboratory & test and

consultancy charges then that the same could not be termed for

general public utility and therefore, the assessee association cannot

be held as entitled to the benefit of the registration u/s 12AA of the

Act and exemption u/s 11 and other relevant provisions of the Act.

Supporting the action of the CIT(A) the Ld. DR pointed out that the

activities of providing lab test services and consultancy are being

carried out by the Assessee Association like any other agency or

business entity performing this kind of similar function and thus these

activities cannot be termed and charitable because it is catering to

Government Agency. The Ld. DR, further submitted that the State

Transport Undertakings can get same work done from any other

agency by paying the requisite charges and the assessee is only a

preferred service provider, therefore, activities conducted by the

assessee association clearly hit by newly insert proviso to Section

2(15) of the Act.

24. The Ld. Departmental Representative also contended that

there is reliable evidence and material to show that the activities were

carried out on sound and recognized business principles and pursued

with reasonable continuity it would constitute business even if there 20 ITA NO. 3271/ Del/2014

is no profit motive. The Ld. DR, further, contended that it is not the

motive of the person doing on Act which decides whether the act

done by him is the carrying on business, profession or vocation but a

person carrying on what otherwise would be a business may say that

he did not carrying on business because it was not his function to

make any income out of it. Supporting the impugned notice and order

u/s 263 of the Act, the Ld. DR also pointed out that simply because

certain details were called by the AO and also placed on record do

not in fact that the AO has applied his mind to the case while granting

exemption u/s 11 of the Act to the assessee. The Ld. DR vehemently

contended that as the impugned assessment order is silent on the

issue of applicability of proviso to section 2(15) of the Act then it was

rightly held that the AO did not examine the issue of taxability of

revenue from test laboratory and consultancy charges in the light of

newly inserted proviso to Section 2(15) of the Act and therefore, the

CIT rightly held that the order so framed by the AO was erroneous

and prejudicial to the interest of the revenue as the receipts / income

from test laboratory at Rs. 7.72 crores and consultancy charges of

Rs. 62.47 lakh have not been brought to tax.

21 ITA NO. 3271/ Del/2014

25. A careful consideration on above submissions at the very

outset, we respectfully take guidance from the recent judgment of

Hon'ble Jurisdictional High Court Delhi in the case of ICAI vs. DGIT

(E) 358 ITR 91 (Delhi) wherein their lordship provided a landmark

interpretation to section 2(15) of the Act as well as newly inserted

proviso to this section after considering the ratio and prepositions laid

down by various judgments and orders of Hon'ble Supreme Court

and High Court the relevant operative part of this order at page 122

para 67 reads as under :-

"67. The expressions "trade", "commerce" and "business", as occurring in the first proviso to section 2(15) of the Act, must be read in the context of the intent and purport of section 2(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organized manner. The purpose and the dominant object for which an institution carries on its activities is material to determine whether the same is business or not. The purport of the first proviso to section 2(15) of the Act is not to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fee. The object of introducing the first proviso is to exclude organizations which are carrying on regular business from the scope of "charitable purpose".

The purpose of introducing the proviso to section 2(15) of the Act can be understood from the Budget Speech of the Finance Minister while introducing the Finance Bill, 2008. The relevant extract to the Speech is as under (see [2008] 298 ITR (St.) 33, 65) :

22 ITA NO. 3271/ Del/2014

" ... 'Charitable purpose' includes reli8ef of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under 'charitable purpose' . obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected."

The expressions "business", "trade" or "commerce" as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organization is charitable any incidental activity for furtherance of the object would not fall within the expressions "business", "trade" or "commerce".

26. It would be also appropriate to consider the ratio of the decision

of Hon'ble Punjab and Haryana Court in the case of CIT Vs. Truck

Operator Association (Supra), as relied by the Ld. DR, wherein facts

of that case and observations of Hon'ble High Court reads as under :-

"On examination of the objects and the purpose of the association in the present case, it emerges that the respondent-association is union of truck operators constituted for facilitating its members to carry on the trade of transportation and not to allow the outsider or non-member to undertake any business activity within the precincts of Hansi town/village. The asso-ciation charges fees from its members before the transportation on the basis of the distance involved. The membership and payment of fees are mandatory and the element of voluntary contribution is missing. The asso-ciation is vigorously pursuing transportation business by receiving freight charges on behalf 23 ITA NO. 3271/ Del/2014

of its members. The welfare activities adopted for the truck drivers, cleaners and mechanics of the truck owners are in the nature of staff welfare activites, as are common in other business organization which cannot be termed for general public utility."

27. In view of above, we have not hesitation of hold that the facts of

the present case clearly distinguishable. We are in agreement with the

contention of the Ld. AR that the facts of the present case are clearly

distinguishable from this case of Truck Operators Association (Supra)

as in that case the assessee association was vigorously pursuing

transporation with this by receiving freight charges on behalf of its

member and the so called welfare activities adopted for the Truck

Drivers, cleaners, mechanics of the truck owners were in the nature of

staff welfare activities which were similar and common in the other

transport business organizations which could not be termed for

general public utility. In the present case, the CIT(A) have not

conclusively held that the assessee association was carrying on

laboratory test and consultancy services with the main object of

earning profit in the line of "business", "trade" or "commerce".

Accordingly we respectfully held that the benefit of the ratio of the

decision of Hon'ble Punjab & Haryana High Court (Supra) is not 24 ITA NO. 3271/ Del/2014

available for the revenue as the facts of the present case are clearly

distinguishable from that case.

28. Turning to the facts of the present case, we note that the

assessee association is an association of Apex Governing Body of

State Road Transport Undertakings (STU) registered as a society

under the Society's Registration Act which is wholly patronized by the

Central Government for working under the Ministry of Road Transport

and Highways and the Secretary to the Government of India, Ministry

of Road Transport and Highways is the ex-officio president of the

assessee association and the governing body of the assessee

association includes representatives from all the State Road

Transport Undertakings.

29. We also note that the assessee association was established

with the main object of improving public transport system in the

country and its objects as per memorandum of association as

reproduced hereinabove in para 9 of this order clearly reveals that

the objects of the assessee association are dedicated towards

improving road safety standards and to promote facilities for

advancing the skill of employees of State Transport Undertakings 25 ITA NO. 3271/ Del/2014

through regular training and research which cannot be held as

business activities. It is also pertainment to note that the Ld. DR has

not disputed this fact that the assessee association was provided

exemption u/s 11 of the act in the earlier assessment orders on the

revenue receipts from test laboratory charges and consultancy

charges.

30. Now we consider the effect of insertion of proviso to section

2(15) of the Act. As per recent judgment of Hon'ble High Court of

Delhi in the case of ICAI Vs. DGIT (Supra). We respectfully note that

their lordship has explicitly held that the first proviso to section 2(15)

of the Act carves out and exception which excludes advancement of

any object of general public utility from the scope of charitable

purpose to the extent that it involves carrying on any activity in the

nature of "Trade", "Commerce" or "business" or any activity of

rendering certain services in relation to any "trade", "commerce" or

"business" for a cess or fee or any other consideration, irrespective

of the nature of the use or obligation or retention of income from such

activity. Their lordship also held that the expression "trade",

"commerce" or "business", as occurring in the first proviso of section 26 ITA NO. 3271/ Del/2014

2(15) of the Act, must be read in the context of the intent in purported

of Section 2(15) of the Act and cannot be interpreted to mean any

activity which is carried on in an organized manner.

31. Explaining the dominant of object of newly inserted proviso to

section 2(15) of the Act, speaking for Jurisdictional High Court of

Delhi, their lordship also held that the first proviso to section 2(15) of

the act does not purported to exclude entities which are essentially

for charitable purpose but are conducting some activities for a

consideration or a fee and the object of introducing first proviso is to

exclude organizations which are carrying on regular business from

the scope of charitable purpose. It was also held that expression

"business" "trade" or "commerce" as used in first proviso must, thus,

we interpreted restrictively and where the dominant object and

organization is charitable any incidental activity for furtherance of the

object would not fall within the expression "business", "trade" or

"commerce".

32. In view of the ratio of the judgment of Hon'ble High Court of

Delhi if we analysis the facts and circumstances of the present case

at the outset we note that the activity laboratory testing and 27 ITA NO. 3271/ Del/2014

consultancy is certainly bringing revenue for the assessee

association but the CIT has not controverted or demolition this fact

that the main object for which assessee association was created by

Government of India is to impart services to the State Road Transport

Undertakings and from careful reading of the objects of the assessee

association as reproduced hereinabove clearly mandates its

charitable objects and purpose. The contention of the assessee

association also support from this fact that the assessee association

have not revised its laboratory test charges since 2001 and the

services are provided on the similar line by charging reasonable fees

without any profit earning object.

33. After going through the objects and activities of the assessee

association it is clear that the assessee association did not carry on

any "business", "trade" or "commerce" with the main object of

earning profit. The activity of imparting support services to State

Road Transport Undertakings without any profit motive are being

conducted in furtherance of the object for which assessee association

had not constituted by the Government of India. The activities of

providing laboratory test services and consultancy to the State Road 28 ITA NO. 3271/ Del/2014

Transport Undertakings of all over India cannot be held to be "trade",

"business" or "commerce" merely because some fee or charges are

being received by the assessee association. Accordingly, even if

some fees or charges are being charged by the assessee association

for providing laboratory test services and consultancy services in

accordance with its charitable objects, the activities cannot be held to

be rendered in relation to any "trade" , "commerce" or "business"as

such activities are undertaken by the assessee association in

furtherance of its main objects which are undisputedly of charitable

nature and which is not an activity of "trade", "commerce" or

"business" with main object of earning profit.

34. We are unable to agree with the reasoning of DGIE that there

is evidence and material to show that the activity were carried out on

sound and recognized business principles and persuaded with

reasonable continuity then it would constitute business even if there

is no profit motive as we have already noted that in assessee's own

case for A.Y. 1989-90, 1990-91 and 1993-94, ASRTU vs. DDIT(E)

(Supra) it was held that the aims and objects of the assessee were to

render common services to members and assist them in such matters 29 ITA NO. 3271/ Del/2014

as standardization of equipment, purchase of materials for thereon

use at economical prices, promotional efficiency of Road Transport

Services and deduction is operational cost of member State Road

Transport Undertakings are the activities of charitable purpose

towards promotion of main objects set out in the Memorandum of

Association of the assessee association, thus, in absence of any

substantial allegation or incriminating material. We are unable to

accept view of the CIT that the assessee association is conducting

these activities with the main object of earning profits. In the present

case, the activities of the assessee's association cannot be termed

either "trade" , "commerce" or "business" simply because the

assessee association is receiving some charges or fees for rendering

services on non-commercial principles to State Road Transport

Undertakings and other concern members for a fee or charges.

35. At this juncture , we also respectfully follow the ratio laid down

by the Hon'ble Delhi High Court in the case of Indian Trade

Promotion Organisation vs. DGIT (Supra) wherein it was held that

thus, first proviso to section 2(15) of the Act would have been to be

read down and interpreted in the context of section 10 (23C) (iv) of 30 ITA NO. 3271/ Del/2014

the Act as the context requires such interpretation where assessee is

not driving primarily by desired or motive to earn profit but to pursue

activities in furtherance of its objects of general public utility then it

must be recognized as an institution established for charitable

purposes. The Hon'ble Delhi High Court in the case of Institute of

Chartered Accountant of India vs. DGI 347 ITR 99 (Delhi) held that

the object of the first proviso to section 2(15) of the Act is to include

any transaction for a fee or money and the activity would be business

if it is undertaken with the profit motive but in some cases this fact

must be determinative and the profit motive test should be specified

and viewed in the context of section 10 (23C) (iv) of the Act. As we

have already noted that we found force in the contention of the Ld.

AR that the Assessing Officer raised query about the revenues

received from test laboratory charges and consultancy charges and

the assessee placed required details and explanation before the AO

in this regard and this fact was also noted by the CIT(A) in paragraph

4.4 of the impugned order. We are unable to approve the

observations of the CIT that the AO did not examine the issue of

taxability of revenue from test laboratory and consultancy charges in 31 ITA NO. 3271/ Del/2014

the light of proviso to section 2 (15) of the Act. We may also point out

that the AO has considered this issue in paragraph no. 2 and 3 of the

assessment order and conclusion of the AO cannot be held as

erroneous merely because the AO has not decided the issue in so

many words as per expectation of the Ld. CIT.

36. Under above noted facts and circumstances, we reach to a

conclusion that the CIT was not justified in holding that the view taken

by the AO was granting exemption u/s 11 of the act was not

inaccordance with law and was unsustainable. Per contra, from bare

reading of the assessment order, it is vivid that the assessing officer

made reasonable inquiry on the issue of test laboratory charges and

consultancy charges and the AO took a plausible and reasonable

view that the revenue earn from these activities cannot be held as

income with the main object to earn profits. We also clearly note that

the activities of laboratory testing and consultancy was in furtherance

of main and charitable object of the assessee association it cannot be

termed as activities with the main object of profit earning motive.

Thus, notice u/s 263 of the Act and impugned order is not sustainable

and assumption of jurisdiction for revising the assessment order u/s 32 ITA NO. 3271/ Del/2014

263 of the act is also not held be valid and the same is void ab initio

and therefore, we quash the same.

37. Accordingly, appeal of the assessee is allowed and impugned

notice and order u/s 263 of the act and all subsequent proceedings

and orders in pursuant thereto are quashed.

In the result, the appeal of the assessee association is allowed.

Order pronounced in open court on 08th May , 2015.

Sd/- Sd/- (N.K.Saini) (C.M.Garg) Accountant Member Judicial Member

Dated 8th May, 2015 B.Rukhaiyar

Copy forwarded to 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A)

5. CIT (ITAT), New Delhi. By order AR, ITAT N. Delhi 33 ITA NO. 3271/ Del/2014